HP to acquire Peregrine Systems for $425M

Hewlett-Packard Co. plans to acquire IT asset and service management software vendor Peregrine Systems Inc. in a cash deal for US$425 million, the two companies announced Monday. By integrating Peregrine's products into its HP OpenView systems management suite, HP said it hopes to position itself as one of the market leaders in asset management software.

The deal, which is subject to approvals from Peregrine shareholders and regulators, values Peregrine at $26.08 per share. The HP offer amounts to a $6.98 premium over the closing price of company shares Friday. In trading late this morning, Peregrine shares jumped by $6.30 on the news.

In a separate deal, HP announced plans to buy storage resource management (SRM) vendor AppIQ Inc. for an undisclosed amount, part of an effort to create a single management interface for all HP server and storage products. Burlington, Mass.-based AppIQ makes standards-based storage management software that monitors and automates the provisioning of disk capacity across servers, software applications and heterogeneous storage-area networks (SAN).

HP expects to close on the Peregrine deal no later than the first quarter of 2006.

"The timing was right to pursue Peregrine," Todd DeLaughter, vice president and general manager of HP's management software business, said in an interview. "As part of the build-out of our Adaptive Enterprise strategy, one key category we wanted to cover was asset management."

With Peregrine's AssetManager software, "we're clearly putting the keys to the IT safe firmly back in the hands of the CIO," so CIOs can keep a close eye on asset management within their organizations, he said.

Founded in 1981, Peregrine is based in San Diego and has offices elsewhere in the U.S., as well as in Canada and Brazil and in a number of locations in Europe and the Asia-Pacific region. Peregrine employs about 700 staff and its customers include Cingular Wireless LLC, Circuit City Stores Inc. and Credit Suisse Group, according to the company's Web site.

Peregrine has had a troubled financial past. The company filed for Chapter 11 bankruptcy in September 2002 after accounting irregularities led to an investigation by the U.S. Securities and Exchange Commission. The irregularities eventually totaled $250 million.

In order to cut costs during 2002, Peregrine halved its staff, closed offices and sold off its Remedy service management business to BMC Software Inc. Peregrine emerged from Chapter 11 in August 2003 and has been playing catch-up with restating its SEC financial filings ever since. Eight former Peregrine executives were indicted in October 2004 by a federal grand jury and charged with conspiracy to commit multibillion-dollar securities fraud from March 1999 through May 2002.

DeLaughter noted that HP has been monitoring Peregrine's financial status closely for some time. "We've confirmed there's no unknown risk" in acquiring Peregrine, he said, adding that some mechanisms in relation to the firm's restating of its financials are still ongoing.

Given its long-standing close relationship with Peregrine, IBM might have seemed a more likely buyer. DeLaughter downplayed the June expansion of a strategic alliance between IBM and Peregrine as simply renewing an existing agreement between them. "Our intention is to support IBM customers and IBM Global Services," he said. "Going forward, we'll use HP's own services arm" to provide support.

There is some overlap between HP's and Peregrine's service management software offerings, according to DeLaughter. HP has a road map to merge Peregrine's ServiceCenter with its own ServiceDesk products. That road map, which will be put in place once the deal is approved, includes any related software in development at Peregrine during the next 12 to 18 months, he said.

Since HP has relied on "an assortment of partners" in the asset management market to date, there's no product overlap with Peregrine's AssetManager, DeLaughter said. AssetManager will form the basis for HP's asset management strategy going forward.

DeLaughter sees only a 20 percent to 25 percent overlap between the companies' customers on the service management side and none on the asset management side. "There's a tremendous opportunity to do cross-selling," he said.

HP is hoping that the majority of Peregrine staff comes over to HP, particularly those in product development and sales and marketing, DeLaughter said. "Peregrine has a lot of depth and talent at the management level," he added. "We'd like to bring on as many of them as we can."

As for the AppIQ deal, HP has had a tight reseller relationship with the company since February and has been reselling AppIQ's StorageAuthority as Storage Essentials SRM products since the spring as part of a joint product development, marketing and services delivery.

Rich Escott, director of storage management software, said Systems Insights Manager 5.0 will ship in about a month and will link the company's server management and storage management under one management interface.

"The talk for a lot of time had been how do you get to a single pane of glass," Escott said. "What we see is you have a lot of companies that have one screen with a lot of windows, but that's not effectively integrated from a workflow standpoint or security standpoint."

Joe Clabby, a research analyst at Summit Strategies Inc. in St. Louis., said the AppIQ acquisition is a "great leap forward" in systems management for HP.

"HP already had (the) ability to discover and monitor and manage systems in a (manual way). Now they can automate that management," Clabby said. "This really rounds out HP's storage management product line."

Clabby said he doesn't think the HP buyout will damage most of AppIQ's business relationships because the other vendors need AppIQ's ability to create a single management pane of glass across heterogeneous storage networks. And IBM already has heterogenous management capabilities with its SAN Volume Controller appliance.

"We intend to keep each of our other OEMs and use the channel as a key business value," AppIQ Chief Technology Officer Ash Ashutosh said.

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